Types of Investments

Type of investment Mutual funds Stocks and shares Bonds

Description This is an organisation which manages the money of its investors by using their contributions to invest and share profits among members This is buying shares from a company whereby the buyer can take certain actions concerning the company. When the company makes profit it is shared among shareholders This is an individual loan given to a government or a company (Bali et al, 2009). The loans are paid with an interest thus the creditors get profit from the interest

Pros The organisation manages the money and determines the safest company or government to invest in A person has a say when it comes to the company management even though very little influence (Neal, & New, 1967). The investor can make huge profits if the company makes a lot of money There is security and there is a very high percentage assurance that payment will be made back

Cons There is an annual fee paid to the organisation that manages the contributions and distributes profits (Friend et al, 1962) If the company does not make money or it is dissolved or declared bankrupt the investors might suffer great losses Depending with the situation some bonds may take long to be paid

Ideal examples For a person who is completely new to the field of investment it is a good start since they do not know the right place to invest If a person invests in a very fast growing company and one that has a very high demand it is an ideal situation since the profits to be made are high When an investor is aware of what type of investment is being made and also if he can trust the company or government then it becomes ideal to give out the bond.

References

Bali, T. G., Demirtas, K. O., Levy, H., & Wolf, A. (2009). Bonds versus stocks: Investors’ age and risk taking. Journal of Monetary Economics, 56(6), 817-830.

Friend, I., Brown, F. E., Herman, E. S., & Vickers, D. (1962). A study of mutual funds. US Government Printing Office, Washington, DC.

Neal, D. M., & New, D. J. (1967). Shares and Stocks. In Working With Arithmetic (pp. 317-332). Palgrave, London.